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Based in Tulsa, Oklahoma,[1] BOK Financial (NASDAQ: BOKF) is a regionally-focused bank holding company.[2] Its cash deposit market share of 10.68% in Oklahoma was greater than any other bank's deposit market share but was surpassed by Midland Financial in 2009.[3] BOK Financial has over $33 billion in assets under management and generates revenue from both loan interest and (unlike many regional banks) fees and commissions. In fact, 34.4% of its $1.4 billion total revenue in 2009 came from fees and commissions.[4] BOK's strategy for growth includes building on its already strong presence in Oklahoma and expanding into surrounding high-growth metropolitan areas -- over half of BOK's loans already come from markets outside of Oklahoma.[1] BOK Financial's largest clients are members of the energy industry and represent 33.7% of their commercial loan portfolio.[4]

The company has distinguished itself throughout the 2008 economic crisis by its lack of direct exposure to Fannie Mae, Freddie Mac, and the sort of mortgage-related securities that caused the crisis.[5] The company was exposed to the now bankrupt SemGroup LP and Lehman Brothers and suffered a net loss of $1.2 million in 2008 Quarter 3 as a result of their loan and derivative credit exposure with these companies.[6]. BOKF later revalued their SemGroup assets more favorably.[7] BOKF was able to decline TARP funds from the United States government in November 2008 because of its relatively well-capitalized position.[8]

Business Overview

BOK Financial is a holding company that operates many banks throughout Oklahoma and nearby nearby states. Its primary strategic objective is to build on its leadership position in Oklahoma while expanding into nearby high-growth areas. The company currently offers services in Oklahoma (as "Bank of Oklahoma"), Dallas, Texas (as "Bank of Texas"), Forth Worth, Texas (as "Bank of Texas"), Houston, Texas (as "Bank of Texas"), Albuquerque, New Mexico (as "Bank of Albuquerque"), Northwest Arkansas (as "Bank of Arkansas"), Denver, Colorado (as "Colorado State Bank and Trust"), Phoenix, Arizona (as "Bank of Arizona"), and Kansas City, Missouri / Kansas (as "Bank of Kansas City").[4]

Business and Financial Metrics

Interest-based income makes up the majority of BOK's income, with $514.5 million in net interest income on $914.6 million total interest revenue in 2009.[9] Fees and commissions accounted for $480.5 million in 2009, or 25.4% of BOKF's total revenues,[9] with most of that revenue coming from deposit service charges and fees ($115.8 million), transaction card revenue ($105.5 million), and trust fees and commissions ($66.1 million).[10]

In 2009, BOK Financial saw an $87 million (or 4.6%) increase in total revenue from 2008.[9] Despite a 16% decrease in interest revenue, increases in security, fee, and commission revenues compensated for the drop.[9] As of 2010 Quarter 1, BOK's total loan portfolio value is $11.3 billion before deducting a loss allowance and almost half of this value comes from the commercial loan portfolio.[11] Since the energy sector makes up 30.8% of the commercial loan portfolio, much of BOK's revenue is attributable to the region's energy industry.[12]

Business Segments

BOK Financial consists of 3 reportable divisions and a Funds Management Unit that works with all of them.

Consumer Banking (10.5% of net income): The Consumer Banking division includes retail lending and deposit services in addition to any mortgage activity.[14] In 2009, the Consumer Banking division contributed $78.3 million (or 10.5%) to BOK Financial's net income for the year.[13]

Wealth Management (5.5% of net income): Provides a range of financial services (including loans and services targeted at high net worth individuals, businesses, not-for-profit organizations, and government agencies) and trust services. Subsidiaries BOSC, Inc. (a broker and dealer) and Cavanal Hill Investment Management, Inc. (an investment advisor) are both a part of BOK's Wealth Management Division. Additionally, administrative and advisory services provided to the American Performance family of mutual funds are a part of Wealth Management's trust services. Brokerage and trading activities in this division include retail and institutional sales of various securities, bond underwriting, financial advisory services, and customer risk management programs.[15] In 2009, the Wealth Management Division contributed $11.0 million (or 5.5%) to BOK Financial's net income for the year.[2]

Funds Management (55.1% of net income): BOK has a Funds Management unit to oversee all operations and manage total liquidity and risk. All other BOK divisions can borrow or provide funds from the Funds Management unit based on their needs.[16] In 2009, over half of BOKF's net income was attributed to its Funds Management Unit; throughout the year, an uncharacteristically high $5.4 billion worth of deposits were sold by various divisions to the Funds Management Unit.[17] These sales were responsible for $40 million of net income attributed to the Funds Management Unit.[17]

Trends & Forces

BOKF is heavily connected to the region's energy industry

In 2010 Quarter 1, BOK's total energy loans totaled $1.9 billion, or 31.5% of its total loan portfolio,[18] with $1.5 billion of those loans attributable to oil and gas producers.[19] BOK's dependence on energy loans to drive earnings makes its performance closely connected with that of the energy industry. Wildly volatile oil prices [20] make the entire sector unpredictable and the future of alternative energies - what will eventually replace oil and fossil fuels - remains uncertain.

BOKF not exposed to risky subprime assets but hurt by economic downturn

BOKF's investment portfolio has never contained any sub-prime mortgages, collateralized loan obligations, collateralized debt obligations, or corporate debt.[5] Additionally, it has never had any direct exposure to Freddie Mac or Fannie Mae.[5] Nevertheless, as all sorts of business across the country struggle to survive the credit crunch, a higher percentage of loans in general are losing value; BOK saw its net charge-offs to average loans hit 1.26% in the second quarter of 2008[21] after maintaining a low rate of 0.19% throughout 2007.[2] Additionally, exposure to the now-bankrupt SemGroup LP and Lehman Brothers has cost BOKF a total of $80.3 million in write-downs. Net charge-offs decreased to 0.63% of average loans by 2010 Quarter 1.[22]

BOKF is not participating in the Treasury's Capital Purchase Program

BOKF reported that it would not request TARP funds from the United States Treasury, citing capital levels that are "well above government requirements;"[8] in the third quarter of 2008, average shareholder equity equaled 12.55% of total capital.[23] It believes that it has sufficient resources without participating in the program to continue lending and pursue acquisition opportunities.[24] If capital becomes less accessible, declining the Treasury's offer means a missed opportunity for BOK . The decision to keep operating as usual, however, promotes client confidence in BOK Financial and stimulates business activity as consumers scrutinize banks for reliability.

Competition

BOK Financial competes for client deposits and loan sales with other nearby regional banks as well as larger banks that operate in its markets.

Other Regional Banks

Major regional bank competitors are:

Marshall & Ilsley (MI): Regional bank focused in Wisconsin; competes with BOKF's Bank of Kansas City and Bank of Arizona in the Kansas City and Arizona markets.[25]